Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 18, Problem 1WNG
To determine
Calculation of tax multiplier and spending multiplier.
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Students have asked these similar questions
A. If your MPC = 0.6 and government spending (G) increases by $800.
What will happen to the equilibrium income?
The Effect of Taxation:
Tax Multiplier = -MPC X Spending Multiplier
Problems:
B. If the MPC = 0.8 and taxes go up by $1000, what will happen to the equilibrium income?
Please fully complete both problems.
Suppose that real GDP for an economy is currently 16,000 billion, the government
purchases multiplier is 2.2 and the tax multiplier is -1.2.
If the government deploys additional spending of 600 billion and cuts taxes by 120
billion, where will GDP end up (in billion)?
Calculate the government spending and tax multipliers for each income bracket, considered separately.
MPC
Tax Multiplier
Income/spending
Multiplier
Household income
0-$30,000
$31,000-50,000
$51,000-80,000
$80,000 and above
0.9
0.8
0.75
0.6
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Similar questions
- Calculate the government spending multiplier and the tax multiplier if the MPC is 0.6. Show your workarrow_forwardSuppose the tax multiplier in an economy is -8. If the government wants to lower total spending (TS) by $8000 what should they do to Taxes (T)? Group of answer choices a. they should increase taxes by $64000 b. they should decrease taxes by $64000 c. they should increase taxes by $1000 d. they should decrease taxes by $1000arrow_forwardExplain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.arrow_forward
- Over the past century, has the government’s tax revenuegrown more or less slowly than the rest of the economy?arrow_forwardPlease answer everything in the photo. The bottom question is asking if it is taxes or government purchases.arrow_forwardEconomist Arthur lagger famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?arrow_forward
- How does fiscal policy affect the equilibrium income in an economyarrow_forward- Most economists have reached the following conclusion about supply-side economics. Supply-side tax cuts are likely to reduce income inequality. Supply-side tax cuts are almost certain to lead to smaller budget deficits. Supply-side tax cuts are likely to widen income inequality. None of these.arrow_forwardBriefly explain the meaning of internal balance or government balanced budget.arrow_forward
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